Saturday, October 04, 2008

Crony capitalism, Tata style

So Tata Motors have decided to pull out of Singur. The newspapers and news sites are full of lamentation about how bad this is for West Bengal's image, how Mamta Banerjee stubbornly thwarted progress, how nobody will ever invest in West Bengal again. Ratan Tata himself has squarely blamed Mamta Banerjee for it all. Reactions from dispossessed farmers are relegated to the bottom of an inner page in today's Times of India (but I suppose I should be happy these reactions were reported at all. (I can't find that report online, but no doubt it's buried somewhere.)

I have several questions about this business:

Why didn't the Tatas (and others who extol the virtues of the free market) acquire their land on the open market? Why did they require the West Bengal government to acquire it for them (thereby outsourcing the strong-arming of the farmers who were forced to vacate)?

Why did they require "lush green farmland" for a factory? Wouldn't barren, infertile land have done equally well?

Why did they require 1000 acres? That's about as big as the Ford River Rouge plant, among the largest in the world, which supplies the largest market in the world (in fact the manufacturing facilities at Ford's plant occupy hardly 600 acres, and they don't have a shortage of land in the American midwest). It is far larger than any plant in Japan, again hardly a small-scale manufacturing nation for cars.

Once they realised that there was a serious matter of concern over compensating the displaced farmers, why did they not take it up seriously?

Indian mainstream media today ranges between tabloid and pornography, but even relatively respectable publications have shown a stunning poverty of imagination. The issue was always the tripartite politics between the elite industry magnate, the political parties, and the displaced farmers. The middle class and its consuming (sic.) choices were invisible in the discourse.

Investors the world over are saying they won't touch West Bengal with a 8000-mile pole, no matter if their goal was a 1-lakh tin box car, or carbon sequestration or photovoltaic plants. "Anti-land-grab" translates into "anti-Nano" translates into a sweeping "anti-industry" or "anti-capitalism". Buddhadeb or successor will now find it impossible to get, say, Mitsubishi to manufacture ultramodern trains in West Bengal, which will be in much more demand as the fuel cost for Nano's quickly goes beyond the reach of the typical Nano owner.

Poverty of imagination. Those the gods would destroy, they first make stupid.

1. The West Bengal Land Reform Act, 1955, puts ceilings on the acquisition of agricultural land (for agriculture too, leave alone any other purpose). The Act is designed such that acquisition of land for any other purpose (mill, factory, workshop) cannot be carried out without involvement of local and state governments. Historically, state governments and the Centre have used the Land Acquisition Act of 1894 to obtain land on behalf of industries and for their own public projects. The Tatas may extol the virtues of the free market, but the free market does not exist when it comes to land. Especially not in West Bengal, which led the country in land reform.

2. "Lush green farmland" (or, cultivable land in less poetic language) makes up 63% of West Bengal land area (link). Another 13% is designated forest land, owned by the federal government and certainly not available for any development. 20% land is under non-agricultural uses (urban areas, habitated rural areas, industrial areas). The paltry remainder includes barren land, pastures, and groves, and this land is highly fragmented geographically. Bengal lies in the rich Gangetic plain with inherently few patches of contiguous uncultivable land unlike Rajasthan or Madhya Pradesh.

5. The craven mainstream media doesnt ask these questions presumably because the corporations, and not the farmers, are the source of their (advertising) revenues.

etlamatey - thanks for the info. "Lush green farmland" was a quote from the TOI article I linked to. Is all of the 63% "cultivable" land actually cultivated? I understand the state government wanted to attract investment and the easy way is to acquire land and give it to the Tatas, but was no other land available? Last I was in Kolkata, the major part of the road to the airport was barren and desolate -- neither built up nor cultivated. The part closer to the city seemed to be developing into an IT hub, but even there, there was apparently lots of open space. (I don't know the history of this land -- perhaps many farmers have been thrown out). Why not give them land there? Which relates to one of my other questions, why did they need 1000 acres?

Rahul - Rural land is a very complex and interesting issue, especially in a place like Bengal, and I appreciate your curiosity.

The way Revenue departments in states classify their land is on two bases - by ownership and by landuse. Land can be either privately owned or owned by instruments of the state - the forest department (forest land), the local panchayat (pasture lands), or the state Revenue department (barren lands). Private ownership and cultivable landuse normally coincide, since no land owned by the state is cultivated, and vice versa - unlike ranchers in the American Midwest and West, Bengali farmers dont normally own vast parcels of uncultivated land.

Historically, when lands were "settled" (i.e., when tax records were first created either the Mughal, Maratha, or British revenue regime) most of the land already under cultivation was registered under private farmers or zamindars. In the case of Bengal, "settlement" took place in the 1700s but agriculture had been going since far back in time because of the flat alluvial floodplain soils and there is little non-cultivable land on record then and lesser so now. After the Land Ceiling Act was implemented, this private land got further fragmented into smaller landholding. The situation is similar in other Gangetic floodplain states like Bihar and UP (read thisinteresting post)

The landuse records I had linked to are collected annually by the state Revenue department - data from each village is sent in by the respective patwari (the village level Revenue dept official). This annual system dates back to Mughal/Maratha times and is pretty robust. I do agree that patwaris sometimes fudge the outgoing data, but in general I would put the error at +/- 5% on the 63% number. In any case, as I mentioned before the non-cultivated land is heavily fragmented and available only in small scattered parcels separated by cultivated farmland or forest land.

I can speculate with some confidence about your question of why the free land outside Kolkata is not granted to Tata. Surely the Tatas would LOVE to have their facilities near rail/air/waterway hubs like Kolkota. Unfortunately, the incremental infrastructural requirements (transportation, water, electricity) are simply too intensive for a city (with its already creaking infrastructure) to handle. Going by other older & operating raw-to-finish megaprojects owned by Government PSUs (like fertilizer or metals corporations), Tatas in Jamshedpur and Junagadh (Gujarat) or by Reliance in Jamnagar (Gujarat), it seems such vast operations are encouraged to establish themselves in places with little existing infrastructure where they start from scratch and build their own roads, power plants, and water supply facilities. In Junagadh, Reliance's captive power plants actually supply electricity to the GEB's grid supplying the surrounding rural areas and the city of Junagadh.

I cant comment on why the Tatas need 1000 acres. Since you compared it with the Ford plant, let me chip in that almost no American manufacturers provide housing to their employees leave alone own and build townships. On the other hand, Tata, Reliance, and PSUs almost as a rule own large townships where they build houses to be rented out to employees. From some little experience I have with such townships, they seem to occupy a good proportion of land area.

In any case, I think the flab might only be to the order of a couple hundred acres and I dont believe that even ultra-judicious and thrifty land planning would have managed to shave off enough acreage of the now-failed purchase to avoid hardship to significant number of families.

WB is just fertile everywhere. The land was to be taken by TATAs as elsewhere. WB gov decided to be extra nice to push the brand Buddha. Mamta wanted to be taken seriously after decades in obscurity. She took help of minority community's anger for keeping taslima in wb (ever wonder why she was suddenly unwanted by commies - athiests and supposedly secular ).

But the questions are asked by people sitting in cushy jobs sipping coffee in baristas :).

Check out how iraq is donating all (okay majority of it - spin works ) its known oil reserves to western oil firms ! http://www.alternet.org/blogs/peek/101555/iraq_to_give_82%25_of_proven_oil_reserves_to_international_oil_companies/

TATA does not own the land, so Mamata's demand is hilarious to say the least. Gov owns the land by obscure law. Unfortuantely WB gov is also the leader in land redistribution (remember naxalbari movement?) which makes it doubly difficult for it to take it away from subsistence farmers.

WT indian people not deserve their mode of transportation - good or bad.

For the displaced farmer numbers - out of 13000 folks 11000 odd folks had signed on and taken the money already.

Media does not ask the questions - same way as in case of conversions - sorry for hijackking the issue. But have you noticed the dearth of material for ndtv and cnn/ibn running reruns over the weekend on kandhamal. Media is pushing the luck - Barkha Dutt and friends are out of touch with reality. As was recently found out - provocation in Mangalore was circulation of paper describing Indian Hindu gods in senile terms to say the least. Media did not care to come back to clarify. Supposedly we should not worry since the majority of people are Hindus. Heck we are greenfield for conversion,s come please rescure us from our gods. Jesus is the saviour.

I hold no brief for the Tatas, but let me tell you that Tatas and the industry associations in Bengal do say that they prefere if the government kept out of the land acquisition process. But let me also say that governments keeping away from the land acquisition process doesn't mean farmers wont be cheated...

etlamatey - thanks for the informative post. Well, West Bengal needs to find a solution that doesn't sound like it came from a totalitarian country.

shivam - I bow to superior wisdom, but I don't really see why the Tatas or others would want to go to the open market when governments are falling over each other to give them land. But in any case, as you say, the farmer is likely to be screwed in the process. (PS - nice to see you here.)

3. I recall reading that the land was not just for the Tatas but also for all the ancillary plants that would be feeding the Nano production. That is perhaps the major reason for requiring more land. A couple of may-be reasons: (a) Tata's manufacturing processes may not be as space-efficient as those in Japan or USA; and (b) WB might have environmental regulations that require industries to offset the emissions/pollution. The Reliance Refinery in Jamnagar has huge swathes of land that are used as green zones and the refinery claims to be emission neutral as a result (this was in 2001, during my visit).

4. Who is to say they didn't? The entire process has been kept very opaque. Not to forget that Tatas have no direct say in deciding how much the farmers would get for their land. Under the present legal regime, Tatas pay the Govt and the Govt pays the farmers. Needless to say, Govt keeps a cut for itself, like property dalaals do.

Others have already touched upon some of the questions, so I will be brief in my answers.

1) Because the West Bengal Land Reform Act made it impossible for them to acquire that big land from free market. They could have gone to other states, but considered trusting when WB government promised to do it for them.2) Even barren land would have done. But there are two big problems. First, such big barren land is not available as a contiguous piece, and second, these tend to be in very under-developed areas. The cost of electricity/transportation/water would have made the project infeasible. The best lands are those near major highways or cities.3) I am not completely sure on this one, but my guess is that when you are starting a plant to build Nano, you better have it big (think about the sales it was expecting). Moreover the plant was to have housing as well as many ancillary units inside the premises.4) They did take it up seriously. What makes you think otherwise? It is just that Mamata Banerjee wanted to hog the limelight so she did not allow any amicable solution to happen.5) Many parts of media did tackle these issues. In fact a lot of things I am writing here are sourced from mainstream Indian media. Probably they stopped digging because even they understood the root cause of the problem.

spacebar - gobsmacked as you say. But it's good to see the CM was "visibly disturbed" and told officials not to bother stretching. One may genuflect only so far.

various - I remain unconvinced about the 1000 acres. A township to cater to a car factory shouldn't occupy more than about 100 acres. The campus of IISc is about 400 acres, and hardly a quarter of that is actually built up. The Tatas are clearly maximising what they can get from state governments at taxpayer expense -- see link from spacebar for another example.

As for the land reforms -- if WB cannot easily give land for industry because of the land reform laws, maybe they should fix that problem first. But the Tatas were not being compelled to invest in West Bengal. At one time they were known for social responsibility. Today it is all history.

(I admit I have several other peeves with the Tatas: thanks to our misguidedly purchasing travel insurance from Tata-AIG over two years ago, we get bombarded by marketing calls from them; and I used to have a Tata phone that did not work as advertised, and terminating it was a horrendous process. They seem to have embraced the wrong aspects of the market economy, in that they believe marketing and hardsell are more important than consumer trust.)

Doesn't the taxpayer (via State's treasury) actually make *more* money when Tatas buy 1000 acres from the State rather than, say, 800 acres? The State pockets the difference between what Tatas pay the State and what the State pays the farmers. It is at farmers' expense, sure, but that's the State's doing, not Tatas'.

I still don't understand why you are so keen on fixing the blame (reference: title of your post) on the Tatas about this fiasco. They have simply followed the law of the land. It is not their job to enact or change laws. The lack of transparency is also something that should have been rectified by the State - because it is State's *duty* - not by the Tatas, who are answerable only to shareholders (regardless of how socially responsible they might have been perceived in the past).

The land-related laws are pretty much the same all over India (which is why Gujarat is now giving them land which State already owns) and the duty to get these laws changed falls upon all of us because we - yes, all of us - suffer because of poor property rights.

VK - your first question is answered in that link. As to why I am blaming the Tatas -- I suppose it is because of their image. One expects all this, and worse, from the Ambanis. But I would not have expected it from JRD Tata.

I think this whole business of "duty to shareholders" is behind the current financial troubles: everyone is running after short-term gains and nobody is interested in the long term. This is not how capitalism always worked, and I think the companies that survive the next 20 years will be the ones who had the long-term picture in mind. It is fine if shareholders don't get their dividend this year: they should be in it for the next 20 years or more.

there are two issues you should've looked at before asking most of those questions, especially when the title of you post seems to indicate the direction which your post shall explore:

* are there any reliable land records in the country?

* can anyone acquire any stretch of land they want to?

etlamatey has done an excellent job of answering some of your questions- but i don't agree with his view that land records in any state in the country are 'robust'..including west bengal. land disputes tie up a major portion of our courts' time and the government itself, at centre/state/local level, is a party to many disputes. many disputes date back decades and some are older than a hundred years.. every survey held in the british era has been controversial, or disputed..and the legacy has spilled over into free india. add to this confusion, post-independence legislation,regulations etc., and add to all this the constitutional ambiguity on the question of 'right to property'..

against that background, can we have anything but crony capitalism? and who should be accused of practising it? the tatas (or any other business group) or the west bengal (or any other)government?

Ah's flat - Your title for your blog couldn't be more appropriate. Cronyism can be seen clearly between TATA's and the mainstream media here; the state government a part of it too. Probably, the central government is keeping quite because they know their facts and figures, and have done their homework. Not only within the country, but even the socialist governments outside are playing their part in this cronyism to an extent. All papers here in the UK are worried about TATA's nano factory closure than anything else. After all somebody is loosing big money. TATA during its visionary years started institutes like TISS and IISc, but now also majorly funds the elite London School of Economics. So, it could be crony capitalism at the best of it. I wish, the farmers could become a part of it too, but then who is left? In my opinion, getting a mere compensation is not enough. Even a better scenario where the farmers are future TATA employees or useless shareholders is not better than an India owned by a number of small farmers. (Not more than 10% of India's agricultural land is owned by farmers with more than 10 hectares land!) Small farmers with secure livelihood (which fertile planes that WB offers) not only smells right but has been one of the strongest reasons for India's slow and steady growth, and self sufficiency with food now. Agriculture has always been the foundation of Indian economy and small farmers are everything to it.

kuffir - when you ask "are there any reliable land records in the country?" I'm not sure whether you mean "is there any land in the country whose ownership is not disputed?" or "is there any state that maintains reliable land records for all the land in that state?" I'd say the answer is yes to the first, no to the second; but the first question is the more important. We are not talking about building a highway across the country that requires land acquisition over a few thousand kilometres. Finding enough land of "clean" status for a car factory (which should surely not require 1000 acres) should not have been an issue.

a very poorly researched post. You must thank etlamatey for saving the day by providing all the facts. And the reasons you gave for not trusting the tatas I found to be so juvenile. If you are writing on a topic atleast make some effort , do your homework and then write on it.

Vivek - it is you who should thank etlamatey for saving you the trouble of making any sort of meaningful argument. My post was a blogpost, not a research article. As for informativeness, I think Prem Shankar Jha's article qualified.

you ask: why did the tatas go to the govt and not to the market? and in your post and your responses to comments 1)you hint that (for the tatas)it was cheaper to get it from the government and 2)the farmers would've got 'screwed' if they (tatas) had gone to the market.

now, how do you reconcile those two views?

you could've avoided twisting yourself into such knots if you hadn't started out with certain presumptions in the first place.

my first message suggested you should have checked whether there was a land market in the country- without 'reliable' land records, or information, there can't be any market. capitalism without markets? but yes, there is exploitation in india- the question is whether you can attribute exploitation and greed in places like singur to the tatas (or other businessmen) alone.

can the tatas (or anyone) buy a thousand 'clean' acres of land anywhere in the country without any major problem? check whether any of the promoters of the hundreds of sezs in the country are acquiring land anywhere in the country without the state government's help. except for reliance in gurgaon (even there the local govt is helping out) i haven't heard of any other instance of land being acquired directly from the market.

kuffir - you haven't answered my question in my last reply to you: what do you mean by "reliable land records?" If you simply mean that some land is not properly accounted for, that doesn't prevent a market. It's like saying you can't have a market in sneakers because people are making fake Nikes. If you mean no land is properly accounted for (its ownership recorded and documentation in place etc), then of course there can't be a market, but is that what you are saying?

And nobody has explained to me convincingly why the Tatas need 1000 acres for a car factory. Note that this is not even their only factory: not even their only Nano factory.

'kuffir - you haven't answered my question in my last reply to you: what do you mean by "reliable land records?"

rahul,

i thought the answers were plain enough in my message, but anyway:

i am not saying 'no land can be accounted for': every inch of land in this country carries a record. i am not even saying 'no land can be properly accounted for', though by international standards, we could say that 'no land is properly accounted for'. what i'm saying is there is no such standard as 'proper' in the indian situation- so any piece of land can be disputed, not just those with 'bad' records. . what i am saying is there is no way you can rely totally on any information you can obtain from anyone- the seller, the broker (or any other intermediary) or the government.

land isn't something you buy everyday- so it isn't like picking the good tomatoes from the rotten ones in a basket at the grocer's. or picking the right kind of grocer so that you don't get cheated. you can't pick the good land with authentic records, updated history of ownership and use from the 'bad' ones as easily. as far as you, as a buyer, is concerned, every tomato in the basket is rotten or good only after you've bought it (or halfway through the process of buying it).

around half the operational land records in rural india are disputed according to one news report i'd read a couple of years ago (can't find the link now..will probably post on it if i find it).according to a study done by an agency employed by the government of andhra pradesh, around 28% of land in urban and peri-urban andhra pradesh is disputed. but that's almost a government estimate, the reality could be much grimmer.

how would you, say, as a buyer, look at that kind of a situation? you might be investing most of your current and future savings in probably a once-in-a-life purchase and there are 50% chances that all of that could be lost- can you blame the tatas for going to the biggest land shark of all, someone who could guarantee 100% protection?

what we have in india is an elemental government failure to create a proper framework for maintaining quality information and for ensuring uninterrupted flow of that information. the market would come to exist only after that is created. until that happens don't blame the seller if the buyer feels cheated or vice versa. blame the government, first.

as for 'why do the tatas need a 1,000 acres?', i think someone has already come up with a good answer to that- apart from space for ancillaries and housing etc., it is quite possible that the tatas wish to use the surplus, if any, for future growth. but yes, as you suspect, too many corporates are asking for more land than they do need, now or in the future, purely for their operational needs.

kuffir - I agree that land records are in a bad shape, and people can gain fake deeds/pattas by bribing the registrar. It certainly is a failure of the government that needs attention at a national scale. That said, the government does own a huge amount of unused land and need not have evicted farmers for it (as some have said, this may not be true in West Bengal, but then the state government should not have come up with a Chinese-style solution for it).

I am not absolving government of the blame at all. I am merely saying that the Tatas are not the pure and good guys here who have been tripped up by a recalcitrant Mamta Banerjee. They have been very much complicit in the mess. For example, they could have considered the quarter-of-one-percent of revenue proposed in Jha's article, and that would almost certainly have solved all problems. The fact that they walked out so readily suggests to me that they did not have very much invested in the first place -- it is the state government that has lost.

Sorry, I don't buy the argument about 1000 acres at all. I don't see housing needing more than 50 acres, 100 at most. Ancilliaries are hardly a unique requirement of the Tatas, and news reports at the time of the Nano suggested (and an article on Tata's own site confirms) that they were cutting costs by outsourcing more, not fewer, of their components, searching globally for the cheapest suppliers -- so their ancilliary requirements should have been less than usual, if anything.

Of course, if the government is willing to give them 1000 acres, why say no? But let's not pretend that the Singur mess was unavoidable, or that the Tatas were entirely blameless.

if you'd like to see things in black and white, i can't stop you- i've tried to explain the situation as it exists is entirely a creation of the government, or the indian state. if a proper framework of information existed, then you can, in my view, apportion blame for any bad or inefficient deal among any buyer or seller. what we have right now is the government, purely.

as for the 'superior wisdom' of journalists like jha: i'd expect him to focus first on why bad deals, from anyone's point of view, happen in the country and not how a deal is bad or good, from his subjective point of view (i could get that from, any street corner paan wallah).

jha has been 'business/economy/policy' journalist for too long, and i know that isn't an area you usually focus on. in a general sense, i can understand that you feel this deal 'stinks' (which it does, as i pointed out)..in my view, to put it briefly, any deal would stink in an imperfect democracy like india.

thanks for your responses. the comments here have stimulated me enough to think of doing another post (i'd done one on nano earlier) on the issues raised here.

kuffir - what seems "black and white" to me is your claim that the whole thing is purely and entirely the government's fault. I agree the government has a lot of the blame, but who's to blame for the corruption and inefficiency in the government? The people who instituted the licence-permit raj, who believed that government babus must control every aspect of our lives. But these people were not just Nehru and his Fabian-socialism crowd: the industrialists of the time, including the Birlas and, yes, the Tatas, encouraged protectionism believing that they couldn't compete otherwise. They were each happy in their own nooks -- Birlas making cars, Tatas making buses -- and didn't want the status quo disturbed. And of course the government was their biggest customer. They'd like us to forget all that today. (I'll dig up links later if you like.)

Anyway -- my point is that it is not enough to keep blaming the government. Whether it is the Tatas or the rest of us, we need to work for real change.

'And of course the government was their biggest customer. They'd like us to forget all that today. (I'll dig up links later if you like.)'

rahul,

thanks, but i've written on those issues on my own blog a few times in the past. and the government is still their biggest customer. but that, as i said earlier, doesn't absolve the government of the original sin of not creating a proper framework in which any seller or buyer of land doesn't feel cheated.

Even assuming the Tatas acted in line with their old legacies and made socially responsible deals, what prevents the dozen other big-name firms (the Reliances, if you will) with lesser scruples from hashing out similar ugly deals? The behaviour of the Tatas seems only like the proximate cause for the fiasco. The ultimate cause seems to me to be the laws that prevent the conversion of agricultural land to industrial land on a medium-to-large scale. No doubt, even if there were a free market in agricultural land, one would see shady deals and farmers getting swindled out of the true value for their land. But a misappropriation on the scale of Singur? Seems unlikely to me.